[Federal Register Volume 82, Number 215 (Wednesday, November 8, 2017)]
[Notices]
[Pages 51885-51887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24251]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81997; File No. SR-NASDAQ-2017-116]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to an Incentive to the Market Access and Routing Subsidy
Program
November 2, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 31, 2017, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's pricing at Chapter
XV, Section 2 entitled ``Nasdaq Options Market--Fees and Rebates,''
which governs pricing for Nasdaq Participants using The Nasdaq Options
Market LLC (``NOM''), Nasdaq's facility for executing and routing
standardized equity and index options. The Exchange proposes to amend
an incentive offered today related to its subsidy program, the Market
Access and Routing Subsidy or ``MARS.''
While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on November 1, 2017.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NOM proposes to amend the Exchange's pricing at Chapter XV, Section
2 entitled ``Nasdaq Options Market--Fees and Rebates.'' Specifically,
the Exchange proposes to amend an incentive in note ``d'' offered to
NOM Participants that qualify for any MARS Payment Tier in Chapter XV,
Section 2(6) related to the MARS subsidy program. MARS pays a subsidy
to NOM Participants that provide certain order routing functionalities
to other NOM Participants and/or use such functionalities
themselves.\3\
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\3\ Generally, under MARS, the Exchange pays participating NOM
Participants to subsidize their costs of providing routing services
to route orders to NOM. The Exchange believes that the proposed
amendment to MARS will continue to attract higher volumes of
electronic equity and ETF options volume to the Exchange from non-
NOM Participants as well as NOM Participants. The order routing
functionalities permit NOM Participants to provide access and
connectivity to other Participants as well as utilize such access
for themselves. The Exchange notes that one NOM Participant is
eligible for payments under MARS, while another NOM Participant
might potentially be liable for transaction charges associated with
the execution of the order, because those orders were delivered to
the Exchange through a NOM Participant's connection to the Exchange
and that Participant qualified for the MARS Payment.
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Background on MARS
Today, to qualify for MARS, a NOM Participant's routing system
(hereinafter ``System'') is required to meet certain criteria.\4\
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\4\ Specifically the Participant's System is required to: (1)
Enable the electronic routing of orders to all of the U.S. options
exchanges, including NOM; (2) provide current consolidated market
data from the U.S. options exchanges; and (3) be capable of
interfacing with NOM's API to access current NOM match engine
functionality. The NOM Participant's System would also need to cause
NOM to be one of the top three default destination exchanges for (a)
individually executed marketable orders if NOM is at the national
best bid or offer (``NBBO''), regardless of size or time, (b) orders
that establish a new NBBO on NOM's Order Book, but allow any user to
manually override NOM as the default destination on an order-by-
order basis. Any NOM Participant is permitted to avail itself of
this arrangement, provided that its order routing functionality
incorporates the features described herein and the Participant
satisfies NOM that it appears to be robust and reliable.
Participants remain solely responsible for implementing and
operating its System.
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MARS Payments are made to NOM Participants that have System
Eligibility and have routed the requisite number of Eligible Contracts
daily in a month (``Average Daily Volume''), which were executed on
NOM.\5\ Today, NOM Participants that have System Eligibility and have
executed the requisite number of Eligible Contracts in a month will be
paid the following rebates: \6\
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\5\ For the purpose of qualifying for the MARS Payment, Eligible
Contracts may include Firm, Non-NOM Market Maker, Broker-Dealer, or
Joint Back Office or ``JBO'' equity option orders that add liquidity
and are electronically delivered and executed. Eligible Contracts do
not include Mini Option orders.
\6\ The specified MARS Payments are paid on all executed
Eligible Contracts that add liquidity, which are routed to NOM
through a participating NOM Participant's System and meet the
requisite Eligible Contracts ADV. No payments are made with respect
to orders that are routed to NOM, but not executed. Also, a
Participant is not entitled to receive any other revenue from the
Exchange for the use of its System specifically with respect to
orders routed to NOM. Specifically, the specified MARS Payments are
paid on all executed Eligible Contracts that add liquidity, which
are routed to NOM through a participating NOM Participant's System
and meet the requisite Eligible Contracts ADV. No payments are made
with respect to orders that are routed to NOM, but not executed.
[[Page 51886]]
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Average daily
Tiers volume MARS payment MARS payment
(``ADV'') (penny) (non-penny)
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1............................................................ 2,000 * $0.07 * $0.15
2............................................................ 5,000 * 0.09 * 0.20
3............................................................ 10,000 * 0.11 * 0.30
4............................................................ 20,000 * 0.15 * 0.50
5............................................................ 45,000 * 0.17 * 0.60
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Specifically, the specified MARS Payments are paid on all executed
Eligible Contracts that add liquidity, which are routed to NOM through
a participating NOM Participant's System and meet the requisite
Eligible Contracts ADV.\7\
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\7\ No payments are made with respect to orders that are routed
to NOM, but not executed.
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Incentive
Today, the Exchange pays certain Customer \8\ and Professional \9\
Penny Pilot Options Rebates to Add Liquidity. These rebates are
structured as an 8 tier rebate program with certain eligibility
requirements for each tier. In addition to the Customer and
Professional Penny Pilot Options Rebates to Add Liquidity, the NOM
Participant may also qualify for an additional rebate provided the NOM
Participant qualifies for any MARS Payment Tier for each transaction
which adds liquidity in Penny Pilot Options in that month. Today, the
Exchange pays an additional $0.03 per contract Penny Pilot Options
Customer and/or Professional Rebate to Add Liquidity for each
transaction which adds liquidity in Penny Pilot Options in that month,
in addition to qualifying Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity Tiers 1-8. Also, today, NOM
Participants that qualify for a note ``c'' incentive \10\ receive the
greater of the note ``c'' or note ``d'' incentive. The Exchange
proposes to increase the additional incentive in note ``d'' currently
offered to NOM Participants that qualify for any MARS Payment Tier for
each transaction, by increasing the additional $0.03 per contract Penny
Pilot Options Customer and/or Professional Rebate to Add Liquidity for
each transaction which adds liquidity in Penny Pilot Options in that
month, in addition to qualifying Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity Tiers 1-8, to $0.04 per contract.
The Exchange believes that this proposal will continue to attract Penny
Pilot and Non-Penny Pilot Options liquidity to NOM. All market
participants benefit from the increased order interaction when more
order flow is available on NOM.
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\8\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation which is not for the
account of broker or dealer or for the account of a
``Professional.'' See Chapter XV.
\9\ The term ``Professional'' or (``P'') means any person or
entity that (i) is not a broker or dealer in securities, and (ii)
places more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s) pursuant
to Chapter I, Section 1(a)(48). All Professional orders shall be
appropriately marked by Participants. See Chapter XV.
\10\ The note ``c'' incentive can be found at Chapter XV,
Section 2(1) and provides additional incentives to NOM Participants
for meeting certain criteria specified therein.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among Participants and issuers and other persons using
any facility or system which the Exchange operates or controls, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposal to amend note ``d'' in Chapter XV, Section
2(1) to permit any MARS Payment tier to qualify a NOM Participant for
an additional $0.04 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month, in addition to
qualifying for Penny Pilot Options Customer and/or Professional Rebate
to Add Liquidity Tiers 1-8,\13\ is reasonable because the proposed
amendment should continue to encourage NOM Participants to qualify for
both a MARS Payment tier and a Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity, thereby executing a greater
amount of order flow on NOM to the benefit of all market participants
who may interact with the order flow.
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\13\ If the Participant qualified for a higher note ``c''
rebate, the Participant would receive the appropriate note ``c''
rebate they qualified for in that month.
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The Exchange's proposal to amend note ``d'' in Chapter XV, Section
2(1) to permit any MARS Payment tier to qualify a NOM Participant for
an additional $0.04 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month, in addition to
qualifying for Penny Pilot Options Customer and/or Professional Rebate
to Add Liquidity Tiers 1-8,\14\ is equitable and not unfairly
discriminatory. All NOM Participants are eligible to qualify for a MARS
Payment, provided they have System Eligibility, and all NOM
Participants may be eligible for a Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity provided they execute qualifying
volume. All NOM Participants are eligible to qualify for the note ``d''
incentive provided the requisite requirements are met. The Exchange
would uniformly pay the additional note ``d'' incentive to all
qualifying NOM Participants.
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\14\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable.
The Exchange's proposal to amend note ``d'' in Chapter XV, Section
2(1) to permit any MARS Payment tier to qualify a NOM Participant for
an additional $0.04 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month, in addition to
qualifying for Penny Pilot Options Customer and/or Professional Rebate
to Add Liquidity Tiers 1-8,\15\
[[Page 51887]]
does not impose an undue burden on intra-market competition. All NOM
Participants are eligible to qualify for a MARS Payment, provided they
have System Eligibility, and all NOM Participants may be eligible for a
Penny Pilot Options Customer and/or Professional Rebate to Add
Liquidity provided they execute qualifying volume. All NOM Participants
are eligible to qualify for the note ``d'' incentive provided the
requisite requirements are met. The Exchange would uniformly pay the
additional note ``d'' incentive to all qualifying NOM Participants.
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\15\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\16\
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2017-116 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2017-116. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2017-116 and should
be submitted on or before November 29, 2017.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24251 Filed 11-7-17; 8:45 am]
BILLING CODE 8011-01-P